Korea’s Economic Miracle: The Crucial Role of Japan

409 Pages·1997·17.841 MB·English

by  Robert Castley (auth.)

KOREA'S ECONOMIC MIRACLE
Korea's Economic
Miracle
The Crucial Role of Japan
Robert Castley
Fa culty 0/ Economics and Social Studies
University 0/ Manchester
palgrave
macmitlan
First published in Great Britain 1997 by
MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG21 6XS and London
Companies and representatives throughout the world
A catalogue record for this book is available from the British Library.
ISBN 978-1-349-25835-2 ISBN 978-1-349-25833-8 (eBook)
DOI 10.1007/978-1-349-25833-8
First published in the United States of America 1997 by
ST. MARTIN'S PRESS, INC.,
Scholarly and Reference Division,
175 Fifth Avenue, New York, N.Y. 10010
ISBN 978-0-312-16056-2
Library of Congress Cataloging-in-Publication Data
Castley, Robert.
Korea's economic miracle: the crucial role of Japan I Robert
Castley.
p. em.
Includes bibliographical references and indell.
ISBN 978-0-312-16056-2
I. Japan-Foreign economic relations-Korea (South) 2. Korea
(South)-Foreign economic relations-Japan. 3. Industries-Korea
(South) I. Title.
HFI602.1S.K6C37 1996
337.5195052--dc20 96-9306
CIP
© Robert Castley 1997
Softcover reprint oftbe hardcover 1st edition 1997
All rights reserved. No reproduction, copy or transmission of this publication may be made
without written permission.
No paragraph of this publication may be reproduced, copied or transmitted save with
written perrmission or in accordance with the provisions of the Copyright, Designs and
Patents Act 1988, or under the terms of any licence permitting limited copying issued by
the Copyright Licensing Agency, 90 Tottenham Court Road, London WI P 9HE.
Any person who does any unauthorised act in relation to this publication may be liable to
criminal prosecution and civil claims for damages.
The author has asserted his right to be identified as the author of this work in accordance
with the Copyright, Designs and Patents Act 1988.
This book is printed on paper suitable for recycling and made from fully managed and sustained
forest sources. Logging, pulping and manufacturing processes are expected to conform to the
environmental regulations of the country of origin.
10 9 8 7 6 5 4 3 2 1
06 05 04 03 02 01 00 99 98 97
Contents
List of Figures, Boxes and Tables viii
Preface XVII
Glossary and Abbreviations XIX
Introduction: Some Preliminary Observations 1
Existing Explanations
Some Important Aspects 13
Analytical Framework 22
PART I
1 Japan's Industrial Restructuring 29
1.1 The Industrial Ladder 29
1.2 Japan's Prewar Industrial Restructuring 38
1.3 Industrial Restructuring in Postwar Japan 43
1.4 Industrial Relocation 50
1.5 Japan's Commercial Policy 52
1.6 Japan's Investment Policy 67
1.7 Japan's Aid Policy 75
2 Japan's Relationship with Korea 78
2.1 The Geopolitical Factors 78
2.2 Convergence of Economic Interests 87
2.3 Industrial Structures 89
2.4 A Model of Interaction between Korea and Japan 102
PART 11
3 The Role of Capital and Investment 109
3.1 Introduction 109
3.2 The Role of US Aid 113
3.3 The Role of Foreign Loans 11 5
3.4 The Role of the Korean Government 127
3.5 The Role of Foreign Investment 130
v
vi Contents
4 Japan's Role in the Development of Korean Technology 146
4.1 Introduction 146
4.2 Application 148
4.3 Technology Acquisition 149
4.4 The Key Players 157
4.5 Conc1uding Remarks 165
5 Markets and Trade 167
5.1 Exports and Growth 167
5.2 Cause ofKorea's Export Success? 171
5.3 Source of Imports 179
5.4 Sources of Overseas Demand 182
5.5 The Japanese Market 185
5.6 Conc1uding Remarks 189
6 Marketing 193
6.1 The Importance of Middlemen 193
6.2 The Sogo Shoshas 196
6.3 Links with Sogo Shoshas 198
6.4 Korean Conglomerates 208
7 Industrial Organization 211
7.1 Japanese Industrial Organization 211
7.2 Subcontracting System 213
7.3 Subcontracting in Korea 216
PART 111
8 Japan's Inftuence on Korea's Textile Sector 225
8.1 Introduction 225
8.2 Foundations of the Textile Industry 226
8.3 The Cotton Sector 231
8.4 The Importance of Synthetics 232
8.5 The Supply Side 233
8.6 The Demand Side 237
8.7 Trade Patterns 240
8.8 Japan's Motives 248
9 The Heavy Industries 252
9.1 Electronics Industry 255
9.2 Other Key Industries 274
9.3 Other Industries 288
Contents vii
PART IV
10 A Dependence Relationship? 293
10.1 Role of the Government 293
10.2 Regional Factors 300
10.3 Dependence on Key Industries 305
10.4 Capital Dependency 306
10.5 TechnologyDependency 309
10.6 Trade Dependency 311
10.7 Marketing Dependency 318
10.8 Geographical Location 320
10.9 A New 'Dependence' Theory 322
11 Can Korea's Economic Success be Replicated? 328
11.1 The Problem of Replication 328
11.2 Japanese Investment in the ASEAN Countries 333
11.3 The Investment-Trade Nexus 337
11.4 Japanese Aid 341
11.5 The Expanding Role of NICs in Asia 344
11.6 Concluding Remarks 351
References 354
Annexes 376
Index 390
List of Figures, Boxes and
Tables
Figures
A Japan's impact on Korea 24
1.1 Evolution of Japanese industrial structure 36
1.2 The tri angular trade 65
2.1 Investment-export cycle 103
2.2 Relationship between merchant, clothier and artisan 104
2.3 Model of interaction between Korea and Japan 106
6.1 Interconnections between local firms and conglomerates 206
8.1 Man-made fibres flowchart, 1975 239
9.1 The electronics industry 259
9.2 Downstream plants in Ulsan Petrochemical Complex 282
9.3 Korean machinery industry 286
10.1 Virtuous circle 317
Boxes
1.1 Definition of different stages of industrial development 30
3.1 Loans classification 123
3.2 Korean poIicy towards investment 134
5.1 Major export-promotion incentives 173
9.1 Heavy industries legislation 252
Tables
LI Stages in industrial growth 31
1.2 Japanese manufacturing: value of production in current
prices 38
1.3 Composition of Korean exports to Japan 41
1.4 North and South Korea: share of output of selected
industries, 1939 42
1.5a Japanese industrial restructuring, 1950-75 45
1.5b Composition of Japan's industrial output and exports 45
1.6 Japan: distribution of industry, 1973-80 47
1.7 Japan' s trade: sources of imports and destination of
exports, 1954-64 54
viii
List 0/ Figures, Boxes and Tab/es ix
1.8 Japan's trade with the US, by value 55
1.9 Distribution of Japan's exports to the US in 1964 55
1.10 Japan's export intensity: ratio of per cent of total exports
to per cent of total output 56
1.11 Japan's composition of exports 57
1.12 Japan's key exports, by destination, 1968 58
1.13 Japan's growth rate and balance of trade 60
1.14 Japan's trade balance, 1973 and 1980 61
1.15 Structure of machinery exports from Japan, 1970--79 61
1.16 Japan's exports of industrial goods in key markets,
1969 and 1979 62
1.17 Trade imbalances of South-East Asian countries with
Japan 63
1.18 Japanese imports of manufactures from NICs 64
1.19 Trade imbalances of Korea and Taiwan, 1969 and 1979 65
1.20 Japan's trade imbalances with the NICs, 1969 and 1979 66
1.21 Cumulative balance of payments for three NICs,
1970--84 66
1.22 Japan' s balance of payments 67
1.23 Japan's current account growth 67
1.24 Japanese overseas direct investment 68
1.25 Share of individual countries in Japan's foreign private
investment 69
1.26 Korea and Taiwan: investment and imports of machinery,
1967-68 70
1.27 Cases of investment in textiles and electronics in South-East
Asia,1951-74 70
1.28 Accumu1ated Japanese FDI by region and manufacturing 71
1.29 Japanese investment in Asia 72
1.30 Japan and US shares in investment in NICs 73
1.31 US: cumu1ated amount of direct investments in Asian
countries at end of 1977 73
1.32 Korea: sources of imported technology 74
1.33 Top three recipients of Japanese government loans 75
1.34 Net flows of financial resources from Japan to developing
countries and multi-lateral agencies 75
2.1 US trade imbalance 80
2.2 Japan and US: current balance of payments 81
2.3 Reasons for Japanese investment in Korea 83
2.4 Korea's economic growth, 1960-69 88
2.5 Korea: annual growth rates of GNP and manufacturing 89
x List 0/ Figures, Boxes and Tables
2.6 Korea: distribution of GNP by sector and origin at 1980
constant prices 90
2.7 Korea: index of industrial production 91
2.8 Korea: composition of gross output and MV A in
manufacturing, 1966 and 1975 91
2.9 Structural change in shares of Japanese and Korean
manufacturing 95
2.10 Japan and Korea: changes in industrial structures 95
2.11 Japan and Korea: manufacturing industries 96
2.12 US imports from Japan and NICs in 1960s 97
2.13 Japan's sales in the US market 97
2.14 J apanese and Korean shares of the US market, 1966
and 1971 98
2.15 Competition for industrial goods in major markets 98
2.16 Composition of Korean-Japanese trade 99
2.17 Japanese and Korean exports 99
3.1 Korea: investment as a percentage of GNP 110
3.2 Cost of foreign loans 111
3.3 Korea: savings, 1962-74 111
3.4 Korea: savings and investment, 1962-74 111
3.5 Korea: financing the planned investment 112
3.6 Korea: capital investment in steel and chemicals 112
3.7 Korea's money supply 113
3.8 Summary of US aid to Korea 114
3.9 US non-project assistance to Korea 115
3.10 Korea: foreign loans and investment agreements, 1964-69 117
3.1 I Korea: major sources of foreign capital 117
3.12 Korea: government foreign borrowing, 1962-76 118
3.13 Korea: share of government foreign borrowing by sector,
1967-76 119
3.14 Korea: distribution of public foreign loans 119
3.15 Korea: source of commercialloans-actual arrivals 120
3.16 Korea: status of foreign-capital financed projects by
December 1969 120
3.17 Korea: private foreign borrowing, 1962-76 121
3.18 Korea: commercial loans by industry 122
3.19 Korea: private foreign borrowing share by sector, 1967-76 122
3.20 Korea: sources of external capital 124
3.21 Korea: approved medium and long-term loans 125
3.22 The Korean fiscal investment fund: allocation by sector 127
3.23 Korea: export loans, 1966-76 128